Jiao v. Zou (In re Zou)

656 B.R. 690

IN RE: Meiling ZOU, Debtor.

Guanglei Jiao, Nan Yu, Ruiji Zhai, Yanjun Li, and Troy Law PLLC, Plaintiffs, v. Meiling Zou a/k/a Denise Zou, Defendant.

Case No. 20-44315-jmm

Adv. Pro. No. 21-01036-jmm

United States Bankruptcy Court, E.D. New York

Signed January 3, 2024

Aaron B. Schweitzer, Esq., Troy Law, PLLC, 41-25 Kissena Boulevard, Suite 110, Flushing, NY 11355, Counsel for Plaintiffs Guanglei Jiao, Nan Yu, Ruiji Zhai, Yanjun Li, and Troy Law PLLC.

Alan Stein, Esq., Law Office of Alan C. Stein, Esq., 7600 Jericho Turnpike, Suite 308, Woodbury, NY 11797, Counsel for Defendant Meiling Zou a/k/a Denise Zou.

MEMORANDUM DECISION ON OBJECTIONS TO DISCHARGE AND DISCHARGEABILITY OF DEBTS

Jil Mazer-Marino, United States Bankruptcy Judge

INTRODUCTION

This adversary proceeding is one of three related adversary proceedings. The plaintiffs in the adversary proceedings are former restaurant employees that assert claims for unpaid wages, attorneys' fees, and other amounts due to defendants' alleged violations of the federal Fair Labor Standards Act and New York Labor Law. The defendants owned the restaurant or are alleged to have managed the restaurant or asserted control over the restaurant's workers or their wages.

Plaintiffs seek declaratory judgement against each defendant that plaintiffs' claims are nondischargeable under Bankruptcy Code section 523(a)(6). Additionally, plaintiffs seek declaratory judgment that their claims against defendant Zhaorui Fan are nondischargeable under Bankruptcy Code section 523(a)(2)(A). Lastly, plaintiffs seek judgment denying Zhaorui Fan a discharge under Bankruptcy Code section 727(a)(4)(A).

For the reasons set forth below, judgment is granted in favor of plaintiffs to the extent that each plaintiff's claims against Zhaorui Fan will be declared nondischargeable under Bankruptcy Code section 523(a)(6). Judgment is denied on plaintiffs' other claims against Zhaorui Fan. Judgment is denied regarding plaintiffs' claims against all remaining defendants.

JURISDICTION

The Court has jurisdiction over this adversary proceeding under 28 U.S.C. § 1334(b), 28 U.S.C. § 157(a), and the Standing Order of Reference entered by the United States District Court for the Eastern District of New York dated August 28, 1986, as amended by Order dated December 5, 2012. The Court may hear and determine these proceedings because they are core proceedings pursuant to 28 U.S.C. § 157(b)(2)(I) and (J). This decision constitutes the Court's findings of fact and conclusions of law to the extent required by Rule 7052 of the Federal Rules of Bankruptcy Procedure.

BACKGROUND

A. The Bankruptcy Cases

i. The Fan Bankruptcy

On December 18, 2020, Zhaorui Fan ("Fan") filed a voluntary petition for relief under chapter 7 of title 11 of the United States Code. In re Zhaorui Fan, Case No. 20-44317 (the "Fan Bankruptcy"), ECF No. 1.

Fan filed his Schedules and Statement of Financial Affairs ("SOFA") on December 18, 2020, and January 4, 5, and 8, 2021, and amended Schedules on, January 11 and April 20, 2021. Schedules, Fan Bankruptcy, ECF Nos. 1, 15, 18, 21, 25, 37, 48; SOFA, Fan Bankruptcy, ECF No. 23. The Schedules and SOFA are signed by Fan under penalty of perjury. Id. Fan's Schedules represent he has no interest in any business-related property. Schedules, Fan Bankruptcy, ECF Nos. 1, 15, 18, 25, 37, 48.

Fan's SOFA discloses Fan's interests in the following businesses:

• Shang Shang Qian Inc. ("Shang Shang Qian") (Flushing, New York). As per Fan's SOFA, Shang Shang Qian operated a Chinese restaurant that was in business from July 15, 2015 through November 2018. SOFA, Fan Bankruptcy, ECF No. 23.

• USA Lida Seafood (Garden City, New York). As per Fan's SOFA, USA Lida Seaford existed in 2018. Id. The nature of the business is not disclosed in the SOFA. The SOFA reports that the "business closed." Id.

• Black Mercury. Fan's SOFA reports that Black Mercury was "[n]ever active." Id.

• New DBI Trading Inc (Flushing, NY). Fan's SOFA reports that the business began operating on January 23, 2014 but does not disclose the nature of the business or whether the entity still exists. Id.

ii. The Wu Bankruptcy

On December 18, 2020, Daffney Wu ("Daffney") and Yuanyuan Wu ("Andy") filed a joint petition for relief under chapter 7 of the Bankruptcy Code. In re Daffney Wu and Yuanyuan Wu, Case No. 20-44314 (the "Wu Bankruptcy"), ECF No. 1. Daffney and Andy filed their Schedules and SOFA on December 18 and 21, 2020, and January 4 and February 27, 2021. Schedules, Wu Bankruptcy, ECF Nos. 1, 8, 21, 28; SOFA, Wu Bankruptcy, ECF No. 27. The SOFA indicates that Andy became a 50% owner of Shang Shang Qian in 2016. SOFA, Wu Bankruptcy, ECF No. 27.

iii. The Zou Bankruptcy

On December 18, 2020, Meiling Zou ("Zou" and together with Fan, Andy, and Daffney, the "Defendants") filed a petition for relief under chapter 7 of the Bankruptcy Code, together with her Schedules and SOFA. In re Meiling Zou, Case No. 20-44315 (the "Zou Bankruptcy"), ECF No. 1. Zou filed amended Schedules on December 21, 2020. Zou Bankruptcy, ECF No. 1, 7.

B. The FLSA Action

On October 9, 2018, Guanglei Jiao ("Jiao"), Nan Yu ("Yu"), Ruiji Zhai ("Zhai"), and Yanjun Li ("Li" and together with Jiao, Yu, and Zhai, the "Plaintiffs"), together with Troy Law PLLC ("Troy Law")¹, filed a lawsuit against Shang Shang Qian and Defendants for alleged violations of the Fair Labor Standards Act of 1938, ("FLSA") and New York Labor Law, ("NYLL") in the United States District Court, Eastern District of New York, Case No. 18-cv-05624 (the "FLSA Action").

C. The Adversary Proceedings

On March 29, 2021, Plaintiffs and Troy Law filed three adversary proceedings: (i) Adversary Proceeding No. 21-1035 against Daffney and Andy (the "Wu Adversary Proceeding"); (ii) Adversary Proceeding No. 21-1036 against Zou (the "Zou Adversary Proceeding"); and (iii) Adversary Proceeding No. 21-1037 against Fan (the "Fan Adversary Proceeding", and together with the Wu Adversary Proceeding and the Zou Adversary Proceeding, the "Adversary Proceedings").

The Complaints filed in each of the Adversary Proceedings allege the debts owed to Plaintiffs are excepted from discharge pursuant to (i) Bankruptcy Code section 523(a)(2)(A) because Defendants engaged in schemes to deliberately underpay Plaintiffs, failed to provide time of hire notices and paystubs, and obtained services from Plaintiffs by willfully making false representations and circumventing state and federal overtime laws, and (ii) Bankruptcy Code section 523(a)(6) because Defendants willfully and maliciously failed to pay wages, overtime, and "spread of hours" premiums, or to provide wage statements and notices in violation of the FLSA and NYLL. Compl. ¶¶ 96-97, 101-102, Wu Adversary Proceeding, ECF No. 1; Compl. ¶¶ 96-97, 101-102, Zou Adversary Proceeding, ECF No. 1; Compl. ¶¶ 96-97, 101-102, Fan Adversary Proceeding, ECF No 1.

In the Fan Adversary Proceeding Complaint, Plaintiffs also claim Fan's discharge should be denied under Bankruptcy Code section 727(a)(4)(A), alleging Fan misrepresented in his Schedules that USA Lida Seafood is closed, and Black Mercury Corp. was never active even though New York State records list both corporations as "active." Compl. ¶¶ 96-97, 101-102, 108-110, Fan Adversary Proceeding, ECF No 1.

i. Motions to Dismiss the Adversary Proceedings

Defendants filed motions to dismiss in each of the Adversary Proceedings. Mot. to Dismiss, Wu Adversary Proceeding, ECF No. 8; Mot. to Dismiss, Zou Adversary Proceeding, ECF No. 7; Mot. to Dismiss, Fan Adversary Proceeding, ECF No 7.

The Court dismissed the Bankruptcy Code section 523(a)(2)(A) claims against all Defendants but granted Plaintiffs leave to replead. Tr. of July 6, 2021 Hr'g 14:25-15:8, 15:4-8, 15:20-16:3, Wu Adversary Proceeding, ECF No. 15. The Court dismissed the Bankruptcy Code section 727(a)(4)(A) claim against Fan but granted Plaintiffs leave to replead. Id. 14:25-15:8, 15:20-16:3.

Plaintiffs did not file amended complaints in the Wu Adversary Proceeding or the Zou Adversary Proceeding. Therefore, the only claims against Zou, Daffney, and Andy are the objections to dischargeability of Plaintiffs' claims under Bankruptcy Code section 523(a)(6).

ii. Amended Complaint and Claims Against Fan

On August 6, 2021, Plaintiffs filed an amended complaint ("Amended Complaint") in the Fan Adversary Proceeding that reiterated their Bankruptcy Code section 523(a)(6) claim and expanded the allegations concerning their Bankruptcy Code sections 523(a)(2)(A) and 727(a)(4)(A) claims. Am. Compl., Fan Adversary Proceeding, ECF No. 15.

a. Non-Dischargeability of Plaintiffs' Claims Pursuant to 11 U.S.C. § 523(a)(2)(A) for False Pretenses, a False Representation, or Actual Fraud

Plaintiffs claim the debts owed to them by Fan are nondischargeable pursuant to Bankruptcy Code section 523(a)(2)(A) because Fan obtained services from Plaintiffs by false pretenses, a false representation, and actual fraud. Am. Compl. ¶ 106, Fan Adversary Proceeding, ECF No. 15. Plaintiffs allege Fan promised all Plaintiffs at the beginning of their employment at Shang Shang Qian that they would receive a pay raise after the first month, yet Fan had no intention of fulfilling that promise. Id. ¶ 97. Plaintiffs claim Fan never provided those raises and they "faithfully relied upon Fan's words to fulfill his promises until the end of their employment." Id.

Plaintiffs claim they justifiably relied on Fan's misrepresentations and omissions and were damaged as a proximate result because they were deprived of the wages to which they were entitled under federal and state law. Id. ¶ 105. Plaintiffs claim, "an employer is tasked with accounting for hours, and despite knowing the number of hours Plaintiffs worked each week for the Defendant's [sic] and Plaintiffs having no knowledge of the legally required wages to be compensated and the circumstances of the employment left Plaintiffs dependent upon [Fan] for a true and correct accounting of hours...